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India’s Industrial Output Growth At Seven-Month Low In May

After gathering pace in April, India’s industrial activity declined sharply in May mainly due to a slowdown in manufacturing activity.

The index of industrial production rose 3.2 percent year-on-year in May, compared to a revised 4.8 percent in April, data released by the Ministry of Statistics and Programme Implementation showed. A Bloomberg poll of economists had projected a 4.4 percent growth.

The Reserve Bank of India, in its June monetary policy review had said that a slowdown in the industrial industrial activity expansion is likely in the first quarter of current fiscal. “That’s due to a significant rise in input prices and perceptions of softening domestic and external demand,” according to the MPC statement.

Thirteen out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of May 2018, compared to last year. The use-based classification showed that production of primary goods rose 5.7 percent, while capital goods’ output advanced 7.6 percent. Intermediate goods growth was at 0.9 percent.

The significant decline in the performance of intermediate goods has been acting as a drag on the overall IIP, Soumya Kanti Ghosh, chief economist at SBI Research wrote in a note. “Within intermediate goods, naptha, cotton yarn, copper bars and rods and industrial valves have shown de-growth in the past few months.”

While the IIP growth is lower than expected, if the purchasing managers’ index is to go by, manufacturing growth should rebound in June, according to Dharmakirti Joshi of Crisil. “Going forward, some improvement in rural demand backed by normal monsoon, a pick-up in exports and positive spillover of the Pay Commission payments on overall consumption demand will crank up industrial growth.”

Accordingly, capacity utililsation of manufacturers is expected to pick-up in some select sectors where consumer-oriented demand and government-spending will support. But overall utilisation rates will not be significant enough to decisively revive private sector investments.

Dharmakirti Joshi, Chief Economist, Crisil

Key Highlights:

Manufacturing sector output grew 2.8 percent in May compared to a 5.2 percent rise in April.